SD23 - The Financial Impact of Historic Designation
Executive Summary: Senate Joint Resolution 162 adopted by the 1991 General Assembly called on the Department of Historic Resources to study "compensation for property designated as a historic landmark." The Department was charged with the task of examining the financial impact on property owners as a result of "designation of land as a historic landmark," and determining "whether compensation for loss in value is advisable." The key question raised by the resolution was how to measure that "loss in value." The argument for compensation depended first upon a definition of loss that is related not to the existing use of property but to some anticipated greater use of the property in the future. The fundamental issue of the study is whether any governmental action that may diminish a property owner's expectation for that property's future development should be considered an action for which the government should compensate that property owner. The specific governmental action in question here is the designation of property as a historic landmark. The various state, federal, and local historic designations may in some instances be among the elements influencing a local speculative real estate market; in addition, subsequent governmental decisions may call for some protection of historic resources as a part of future development projects, so that the intensity of that future development may be somewhat reduced. However, none of the designations deny the existing use of the property, nor do they regulate the buying and selling of those properties. Additional development of designated land can and does occur. It is also clear that, even taken cumulatively, the various federal, state, and local designations are far less severe in their regulatory effect than are numerous other non-compensatory governmental actions that properly limit the ability of property owners to do what they wish with their land. Relevant case law is consistent and clear in finding that the test for compensatory takings pertains to denial of existing use of property or denial of a reasonable return from property, not to influence on speculative value of property based on some anticipated change in its use. In Virginia, state-level designation in particular has been found by the Virginia Supreme Court to have no regulatory effect and to raise no constitutional question of taking. Around the country the courts have regularly upheld local historic district zoning against challenges asserting a taking of property. Information provided by local assessors from every region of Virginia showed no discernible pattern of any negative effect on value flowing from historic designation. While the Department agrees with some proponents of compensation that a property's assessed value at any given moment may not necessarily be a good predictor of what that property's next sale will bring, the Department believes that assessment histories over a period of several years are in fact good indicators of how the local real estate market has treated historic properties in the past. Members of the public who offered comments favoring compensation focused on historic designation's ability to influence local real estate speculation, local zoning decisions, and future development generally. They argued that such influence was sufficient to warrant compensation. Those opposed to compensation relied on the distinction between existing use and speculative value, on the recognized ability of government to affect property values in pursuit of a legitimate public purpose, and on the lack of significant regulatory effect of historic designation. They noted that the current recession accounts for much of the difficulty some property owners are facing in their attempts to sell their land at pre-recession prices. Based on its examination, the Department concludes that even the composite regulatory effect of all possible historic designations is well within guidelines set out by the courts for permissible government action; that compensable loss in value cannot properly be attributed to government action that may or may not influence subsequent decisions on land development that is as yet unspecified and unapproved by local zoning; and that compensation to the owners of designated historic landmarks is therefore not appropriate or advisable. The identification and protection of historic resources is well established in law as being among the legitimate public purposes served by governmental efforts to promote the general welfare. Providing compensation for state historic designation cannot be sustained without also agreeing to similar demands for compensation for every other governmental effort to protect other resources. In addition, compensation inevitably would be due to property owners not just where a local government includes provisions in its zoning ordinance for the protection of any historic resources, but in virtually every effort to regulate land use in the public interest. The Department also concludes that the suggested alternative of granting property owners an absolute veto over the state's ability to identify significant historic resources fundamentally and inappropriately compromises the state's interest in those resources based on their inherent significance. |
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